Post office “bank” inches closer to dream

The most drastic changes to PostFinance are set to place behind the scenes Keystone

Considered by three million account holders as the safest place in Switzerland to deposit their money, the financial services arm of the Swiss post office will finally come out of the closet later this year as a “nearly” fully fledged bank.

If all goes to plan, PostFinance will spin off from its mother company, Swiss Post, next summer and obtain a banking licence, marking a significant step in the company’s evolution. But customers will barely notice the difference – for the time being at least.

Business has been booming for PostFinance since the financial crisis broke out more than four years ago. Since then, the “bank” has acquired well over 100,000 new clients a year as people look for the most secure mattress under which to store their hard-earned savings.

Earlier this year, assets deposited at PostFinance broke the SFr100 billion ($110 billion) barrier for the first time in the organisation’s history.

Profits have also soared and the number of employees has mushroomed. But executives at the state-owned business have been frustrated by certain legislative shackles that restrict growth.

Level playing field

Because PostFinance operates with an explicit state guarantee, it is not allowed to issue its own business or mortgage loans. Instead, it must subcontract these increasingly lucrative services to business partners that assume the risk of loans going bad.

Such an arrangement also placates the private sector that has no wish to see a state-backed entity distorting competition in the banking arena.

“The [Swiss Bankers Association] insists on a level playing field for all banks operating with a banking licence,” Swiss Bankers Association (SBA) spokeswoman Sindy Schmiegel Werner told swissinfo.ch.

But as PostFinance will not be permitted to independently offer the same range of services as other banks, the SBA has no complaints with the award of a banking licence, she added.

A change in legislation two years ago opened the way for PostFinance to set up as a separate entity from Swiss Post – at a date now set for June 26, 2013. On paper, the company will be able to issue shares, but initially the sole shareholder will be Swiss Post – itself state owned.

As a result, PostFinance will exist in no man’s land, between its current position as a state-owned subsidiary of the national postal service and a publicly listed bank. And it will still be unable to issue its own loans to companies and home owners.

Divisions of the Swiss Post

As part of its ongoing diversification efforts, the Swiss Post Group consists of six divisions, including an international arm.

PostFinance – the financial arm of the Swiss Post provides bill payment and certain banking services. PostFinance recently obtained a banking licence, allowing it to offer a wider range of financial services but not issue business or mortgage loans. PostFinance plans to split from the Swiss Post in summer 2013 to become its own entity. 

Asendia (formerly Swiss Post International) – an international shipping arm of the Swiss Post which recently partnered with the global mail division of France’s La Poste to provide business-to-customer shipping services.

Swiss Post Solutions – A division of the Swiss Post offering back-office and mailroom products and services worldwide.

PostMail – The unit of the Swiss Post responsible for letter processing.

PostLogistics – The logistics unit of the Post operates 3 parcel centres and 40 logistics centres throughout Switzerland.

PostBus – The transport provider of the Post which runs a network of buses throughout Switzerland.

Post Office & Sales – Responsible for the network post office locations and sales counters across Switzerland.

Capital buffer

The most drastic changes to PostFinance will take place behind the scenes, far from the gaze of the swelling numbers of savers, small businesses and holders of mortgage debt.

In exchange for a banking licence from the Swiss Financial Market Supervisory Authority (Finma), PostFinance must first raise billions in cash to convince the regulator that it has enough of a cushion to withstand financial shocks.

PostFinance estimates that it will need between SFr4 billion and SFr5 billion. It plans to raise the cash by issuing bonds, receiving the proceeds of real estate sales of Swiss Post properties and by revaluing some of its own assets.

These methods, particularly the last, have raised concerns in political circles – especially the rightwing Swiss People’s Party – that the capital cushion will be little more than an accountancy fig leaf.

In September, Hans Kaufmann, People’s Party spokesman for financial matters, objected in parliament to the proposed elevation of PostFinance to a full bank, saying that its then capital position amounted to just SFr816 million – or 0.76 per cent of its assets.

“No [other] bank would receive a permit with such low capital reserves,” he argued.

PostFinance rejects the criticism and points out that its new capital position will have to pass Finma scrutiny.

A recent hike in management fees for retail and business customers with smaller deposits has nothing to do with the need to raise fresh capital. The new charges reflect the enhanced services, such as 24-hour customer support for e-banking, says PostFinance.

Political will

 For customers, the most significant change will be the security of knowing that their interests will soon be guarded by Finma, according to PostFinance spokesman Marc Andrey.

“We are one of the biggest financial institutions in Switzerland,” he told swissinfo.ch. “Coming under the supervision of Finma will enhance trust among our customers and bring extra transparency.”

It will also bring PostFinance one step closer to its dream of casting off its political shackles and having full access to the booming mortgage loan market.

One possible business model for the future could be Switzerland’s cantonal banks that are, by law, at least one third owned by the cantons in which they operate. Some are 100 per cent canton owned and most provide a full state guarantee.

Despite cantonal banks still being allowed to offer the same range of services as other banks, the SBA does not object because their retail branches are restricted to within cantonal borders. In addition, each cantonal bank pays into a federal scheme that insures the deposits of retail customers against market shocks.

There is still some way, and probably many years, to go before PostFinance could fully operate in the same way as other banks. Its fate remains inextricably tied up with the will of politicians and it would require further changes to legislation to release it from its current bonds.